The Indian rupee bounced back on Thursday, having snapped a six-session rally in the previous session, tracking the dollar's weakness versus major currencies, but choppy domestic shares limited sharp gains.
At 10 am (0430 GMT), the partially convertible rupee was at 45.06/07 per dollar, 0.1 per cent above its 45.09/10 close on Wednesday, when it had dropped 1 per cent on the day -- its worst one-day fall since Nov 12.
"The dollar/rupee pair should be ranged on Thursday with a biddish undertone for the dollar. I expect a band of 44.95-45.20 for today," said a senior foreign exchange trader at a large state-run bank.
The dollar lost steam on Thursday as US bond yields dipped after a sizzling rise in the past few days, while the Australian dollar surged on data showing the country's employment is growing far faster than expected.
Traders would continue to watch the dollar's moves versus majors, especially the euro, for cues. The index of the dollar against six major currencies was 0.3 per cent lower at 79.758 points.
"Just marginal gains so far, nothing major expected, trading should continue to be rangebound," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank, who expects the rupee to move in an intra-day band of 44.80-45.20.
The local stock market would also be closely monitored for cues on the direction of capital flows, dealers said.
The 30-share BSE index rose 0.4 per cent in early trade, tailing firmer Asian markets, but soon gave up gains and turned choppy as investor sentiment remained cautious ahead of the year end amid global macroeconomic concerns.
Foreign funds dumped $93.6 million worth of local shares on Tuesday, after having been net buyers in the six preceding sessions. However, the total foreign fund inflows into local shares still stands at a record $29.2 billion this year, on top of the $17.5 billion received in 2009.
Traders said there were no major inflows expected ahead of the Punjab and Sind Bank initial public offering (IPO), which opens on Dec 13.
But refunds of excess subscription towards the recently closed Manganese Ore India (MOIL) IPO could pressure the rupee lower, traders said.
MOIL's upto $276 million IPO, the third share sale by the federal government in 2010, was 56 times covered on its final day.
One-month offshore non-deliverable forward contracts were quoted at 45.36, weaker than the onshore spot rate, suggesting a bearish near-term outlook.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange were all at 45.2175.
The total traded volume on the three exchanges, inclusive of all available contracts, was at a low $580 million.